Chasing late payments is a frustrating and common element of running a business but unmanageable accounts put a large strain on cash flow causing major issues, especially for SMEs.
During challenging economic times, some companies decide to withhold payments to their suppliers to protect their own cash flow. This detrimental effect works its way down the supply chain and results in cash flow issues that can lead to insolvency, with smaller businesses most vulnerable.
Here are our top six tips to regain control of your cash flow by reducing the risk of late payments:
- Do your research
Whilst nobody wants to turn down business, especially in challenging times such as these, fully checking out the company placing an order can save you money and bother in the long run. Carry out a credit check and assess the risk to your cash flow. If the company seems riskier than you’d like, adapt your payment terms, request a deposit or decline the business. For regular customers who may be struggling, keep in touch to identify any potential delays.
- Crystal clear communications
Do you clearly state your payment policy on your invoices, including when payment is due and the consequences of late payment? Keeping the lines of communication open is vital for managing expectations and collecting payments. Make sure you’re clear about changes to your opening hours or availability to avoid the excuse of not getting hold of you.
- Ways to pay
Making the payment process as convenient as possible creates the best environment for on-time payments. With fewer directors available to sign cheques in person at the moment, it’s far easier to use online payment options, and also means you’ll receive your money quicker. If you’re working on a big or lengthy project, ask for an up-front payment with the remainder payable on completion or stipulate staged payments.
- Useful incentives
Everybody appreciates a discount so although you’ll receive slightly less than your full invoice, it can be beneficial to get an earlier payment, especially if you’re worried about your cash flow. Adjust your early payment discount according to the customer and the type of work and don’t forget to be clear in your payment terms that the deal is void when the due date passes.
- Keep on top of the process
Use your accounting software to review your sales ledger weekly and create an automated system for chasing payments. You can even send a reminder shortly before the payment is due, keeping communications polite and friendly. For customers showing signs of late payment or for repeat offenders, it might be necessary to create a watch list and a stop list.
- Additional support
If your cash flow is at risk and you’re suffering from high levels of late payments, it is worth considering bringing in debt collection assistance via an agency or a solicitor’s letter, if you can absorb the fees. Credit insurance is also available for businesses to safeguard themselves against the non-payment of invoices and any loss is carried by the finance provider.
If you need guidance on getting to grips with your cash flow and minimising late payments, CRM can help. Call the experts on 01865 379272.